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Surprises happen, often Taking a step back, we had no clue about the PM’s announcement about the de-monetization (banning of Rs 500 &...

Wednesday, April 04, 2007

Economic Slowdown

The US slowdown looks imminent what with the leading indicators like the jobless claims as well as the housing rates all coming down not steadily. Right now, though one doesn’t question the Fed’s abilities and foresight, it seems quite unlikely that they will be able to do much to slow down or stop the slowing process. After all, Macro Economics rarely pays much respect to the Economists as well as the central Bankers. In a nutshell, if its is gonna slow down, it will slowdown and there aint pretty much you can do about it. However, with the anticipation and proper planning, you(the Fed) can only delay the inevitable or bring down to a soft landing with its policies and direction.

So, in effect the only question is how bad the slowdown would be, how long it will last and whether the Fed is able to achieve some kind of a soft landing. The implications of the situation will have impact on the whole world, except isolated economies.

India, today is quite a lot dependent or aligned (if you prefer being politically correct) on the US as well as the world and any slowdown there would be a cause for concern. In case of a slowdown, the Fed will be cutting the rates in the US (to encourage investment) which will result in a outflow of funds and some of it will find its way into our markets (bonds and Equities) which will be a benefit, with fresh liquidity.

However, with lower rates in US, the Re/$ will also get impacted with the $ may be further weakening. I would reckon that the scenario is not so bad as of now but all those (wishful thinking) hopes that Indian interest rates will go down in sync with the US rates will not materialize at least in the near term.

Gold would be attractive investment at all declines with a long-term perspective.

Especially if you share the gloom about US much more than what is widely discussed, that is, if you feel that in the long run the burgeoning trade deficit of the US as well as the slowing domestic economy propped up by bloated consumption bankrolled by the Asian economies (via investing in the US Bonds) will end sooner or later. But the caveat is that this scenario is pretty long term and whether you will be patient enough to forego other investment themes that catch the market’s fancy is your call.

All serious people may stop reading from here on:
In the end, let me add that if we cant sustain a 8-9% GDP growth (or cant defeat a Bangladesh), then we damn well stop raving about “Indian dream” and shut shop. I personally am boycotting ALL cricketer's ads. I just switch channels without bias an recommend the same to all who really felt bad about how our Men in Blues.